Many people ask themselves whether they should run their business in a sole proprietorship or in a private limited company. The answer to this question is usually determined by the difference in taxation and the difference in liability. With a sole proprietorship, you are an entrepreneur for income tax purposes (profits are taxed in Box 1). With a private limited company, for income tax purposes you are an employee (salary taxed in Box 1) and also holder of a substantial interest (dividend and sale profit of shares taxed in Box 2).
As an entrepreneur (sole proprietorship), you can make use of the entrepreneur facilities in Box 1. As a result, part of the profit is not taxed. In addition, when profits are relatively low, low rates apply. The disadvantage is that when a lot of profit is made, which may be useful for new investments in the future, tax has to be paid on the whole.
In the case of the BV, as well as the NV and the cooperative, the company's profits are subject to corporate income tax. The rates of this are much lower than those for income tax. As a result, as an entrepreneur, you are left with much more to invest in the future. This gives more clout and therefore more growth potential.
If you do not want to use the profits within the BV but want to spend them privately, you can do so by increasing your income. This requires paying more income tax, as a result of which the company makes less profit. You can also pay dividends. Dividends are ultimately subject to 25% tax.
On balance, the tax ends up being about the same. However, the BV has the advantage of higher growth potential and limited liability. There are also some additional advantages with the BV that may come into play. Such as, among others, the more professional appearance (at least in the eyes of some clients).
For more information on choosing between the sole proprietorship and the BV, please get in touch. We will be happy to help.
pkooijman@kooijmanautar.nl
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